Managerial applications of market elasticity of prices <\/strong><\/span><\/h4>\nThe definition of demand elasticity is of great practical significance when it comes to understanding the number of problems and formulating economic policies, such as:<\/span><\/p>\n\n- \n
Determination of Price Under Monopoly: <\/strong><\/span><\/h4>\n<\/li>\n<\/ol>\nA monopolist takes into account the market elasticity when setting the price for his product (1) when the market for his product is elastic, by setting a low price, he can benefit more. Low price means large sales and, thus, large overall sales If demand is inelastic, high prices can be set. High prices with more or less constant demand (being inelastic) suggest high overall revenues.<\/span><\/p>\n\n- \n
Price Discrimination Basis:<\/strong><\/span><\/h4>\n<\/li>\n<\/ol>\nIt is called price discrimination when a monopolist sells his goods at different prices. The strategy of price discrimination can be implemented by a monopolist because the price elasticity of demand for his commodity is different for different uses and for different customers. It charges high prices for consumers whose demand is inelastic, and low prices for consumers whose demand is elastic.<\/span><\/p>\n\n- \n
Pricing of Joint Goods:<\/strong><\/span><\/h4>\n<\/li>\n<\/ol>\nThe principle of demand elasticity is commonly used in the pricing of joint goods, such as wool and mutton, wheat and straw, cotton and cotton seeds, oil and oil cakes, etc. Separate production costs of each material are not understood in such situations. The price of each one is then set on the basis of its demand elasticity. That is why products such as wool, wheat, and cotton with inelastic demand are highly-priced compared to products such as mutton, straw, and cotton-seeds with elastic demand.<\/span><\/p>\n\n- \n
Determination of wages:<\/strong><\/span><\/h4>\n<\/li>\n<\/ol>\nIn deciding the wages of a specific form of labor, the principle of demand elasticity is essential. If the demand for labor in an industry is elastic, union stakeholders’ strategies would not be of many benefits in raising wages. If, however, the demand for labor is inelastic, even the union’s threat of strike would force the employer to increase workers ‘ salaries in the theory of demand elasticity. If the demand for labor in an industry is elastic, the tactics of the union stakeholders will not be of many benefits in raising wages. If, however, the demand for labor is inelastic, then the threat of a union strike will not be of many benefits.<\/span><\/p>\n\n- \n
The advantage for the Minister of Finance:<\/strong><\/span><\/h4>\n<\/li>\n<\/ol>\nThe idea of demand elasticity is of utmost importance to the Minister of Finance. The Minister of Finance must figure out how to add more money to the exchequer. For this reason, the finance minister takes into account the elasticity of demand when introducing new taxes.<\/span><\/p>\ni) Taxes on commodities with elastic demand would produce less revenue. It is because taxes are going to increase their prices and thus push down their demand.<\/span><\/p>\n(ii) Goods with inelastic demand are taxed at a higher rate. Less demand means fewer profits. There is no question that the price of goods will increase because of these taxes, but there will be little decrease in their demand. Consequently, the state exchequer would accrue further tax revenue.<\/span><\/p>\n\n- \n